Business Technology: ROI Is In The Eye Of The Beholder

Like a child chasing a Monarch butterfly on a windy day, business-technology executives have been pursuing ROI as it flutters tantalizingly within their reach. They just never seem to quite capture it.

InformationWeek Staff, Contributor

April 14, 2002

4 Min Read

Like a child chasing a Monarch butterfly on a windy day, business-technology executives have been pursuing ROI as it flutters tantalizingly within their reach. They just never seem to quite capture it.

Changes in the economy and the evolution of the purchase process for business technology have placed unusual importance on determining the return on investment for almost all technology projects. Until recently, those requirements were placed only on large-scale, expensive implementations. Or on projects that were "on the bubble." But these days, does anyone know of a technology implementation that isn't on the bubble in this economy? As noble as determining ROI is-for the business, for customers, for shareholders-there's still little consensus among businesses, technology vendors, and financial experts on how to measure it accurately. ROI, it seems, truly is in the eye of the beholder.

Try this as a test: Pick a project in the planning stages and jot down the top six or seven priorities you included when considering the ROI for that project. Then ask a relevant line manager to do the same. Finally, ask the CEO to provide you with a list. Don't be surprised to find wildly divergent lists-if not so much in the specific factors, certainly in the prioritization of those factors.

These days, technology implementation is all about value creation for the overall business. As the economy continues to tighten its grip, accounting procedures are being called into question at even seemingly forthright companies, industry consolidation continues apace, and systems-integration needs increase, the pressure to demonstrate "real" ROI becomes paramount. But what is real ROI? Most companies can't even agree internally on standards for measuring ROI-and, of course, those standards often depend on the technology, the project, and the intended business benefit. Even as better tools for measuring those returns become available, the results are only as good and beneficial as the opinion of the person who has the final sign-off for the project.

InformationWeek Research recently interviewed 225 C-level execs-equal parts CEOs, CFOs and CIOs-on the topic of collaboration and business value (we call this annual study Redefining Business). One of the things we confirmed is that CEOs find it especially difficult to verify the business value of proposed technology purchases despite the best efforts of CIOs and the improved tools and metrics they use to measure value. In the recent past, CEOs often rejected IT projects because of a lack of synergy with other initiatives (about half the time), or because the project failed to enhance value to customers. In some cases, a project was vetoed if it didn't show evidence that it would boost the company's stock value.

The good news is that C-level executives are giving more attention to the importance of soft metrics, known as intangibles, in determining the business value of IT projects. What are intangibles? They're the stuff that doesn't show up in traditional cost-accounting methods but that truly makes a difference in maximizing the economic potential of the organization. These include brand value, customer satisfaction, business relationships, and patents. Some of these are clearly more quantifiable than others, but all are important to a company's success.

For example, knowledge management may not obviously reduce a company's cost structure. How does it get the green light in a tight economy? It probably won't if what passes for ROI analysis is simply one question: What will it do for your bottom line in three months or a year? But if it leads different parts of the company to collaborate to produce better intellectual property that will lead to top-line growth, then that's a pretty strong ROI (but, again, ROI is in the eye of the beholder). Of course, as with many other technology investments, it's not the product that makes the difference, it's how it's deployed and used. A project can have a tremendous ROI on paper, but if it's not properly integrated, if the culture isn't ready to adapt it, and if the right person doesn't see it, then don't expect to see green lights all the way to the top of the org chart.

Brian Gillooly

Editor-in-Chief, Events

[email protected]

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